BUSINESS TIPS: Use It or Lose It!
© 2002 Door & Access Systems
Publish Date: Fall 2002
Author: Tom Wadsworth
Use It or Lose It!
By Tom Schuler
Your inventory is likely your company's greatest investment besides your physical plant and equipment. Inventory is an asset that requires proper controls to manage the capital that you have invested in your business.
Managing a door company's inventory boils down to a few simple points. If you know you have it and know where it is, you can sell it and make a return on your investment. If you think you have it, but can't find it, a sales opportunity is lost. If you have too many, if it's last year's model, or if it's a cancelled special, you've lost your investment.
A typical door dealer's inventory will be made up of:
- Finished goods - both stocked and purchased to order. Examples: doors, stop molding, operators, and radio controls.
- Production items - raw material and work in progress. Examples: wood, glass, bulk spring wire, and cable.
- Repair parts. Examples: Plugs, gears, extension springs, motors, and circuit boards.
- Supplies and maintenance items. Example: Caulk, nails, angle iron, and lubricants.
The Door Dealer's Dilemma
Your salespeople want "lots" of finished goods. The customer wants you to customize everything, so you need lots of raw material. The service manager wants to handle any service call, so you need lots of repair parts.
Enter the typical business conflict: the warehouse is only so big, and your checkbook can only cover so many invoices.
The challenge in inventory management is building and maintaining intelligence about the inventory required for expected sales. If every new installation were purchased-to-order from suppliers, then finished goods inventory would all be sold. However, your market will always demand that standard, popular items be stocked in anticipation of routine sales.
This same challenge exists with your production items. The repair business also requires that parts be available for immediate use. The customer will not wait for you to order it from a supplier.
A well-run business will have an inventory control system to manage the inventory investment. You should have the item when you need it. You don't want to have the wrong things. You don't want to be out of popular items. You don't want to have too many of anything.
You don't want to stock up, to find out later that that item is no longer selling. You don't want to have a special order cancelled and gathering dust. You should be able to pick any item without sending out a search party to the warehouse. You don't want to be in constant fire-fighting mode.
Most companies are installing computer software that provides a simple, effective inventory control system, integrated with their sales, purchase order, and accounting systems. This is not a simple task. To be effective, it requires a strong commitment of time, revised business processes, and a new mindset.
But after a short period, a good history will help you plan and forecast your inventory requirements. A record will be visible of each item, when it was used, how many were used, and the cost.
Items can be easily found. Costs will be apparent. Fire drills will be reduced. Best of all, you will increase the return on your capital investment.
Tom Schuler, a veteran business analyst in the garage door industry, is an independent consultant to dealers and manufacturers. He is based in Sterling, Ill. at 815-625-2996 or firstname.lastname@example.org.